Pension funds to bet on state's rising stars
Granholm hopes to retain business
BY KATHERINE YUNG • FREE PRESS BUSINESS WRITER • August 1, 2008
Michigan's $57-billion public pension funds will make a small bet on the future of some of the state's most promising companies.
The State of Michigan Retirement Systems intend to set aside $300 million for two funds to help the state attract and retain successful businesses, Gov. Jennifer Granholm announced Thursday.
The initiative is a dramatic switch for the pension funds, which until now have made only a very small investment in Michigan companies.
The money, however, represents only 0.5% of the more than $57 billion managed by SMRS, which runs pension funds for state employees, public school teachers, the State Police and judges.
But Granholm, who unveiled the Invest Michigan! program, hopes it will start to solve a persistent problem. Michigan companies with bright futures frequently leave the state because they can't get sufficient capital to grow.
The program, which was first announced in the State of the State address in January, involves setting up two professionally managed $150-million funds that will invest in a variety of companies over the next two to three years.
The idea is controversial because many say that the private sector should make investment decisions.
"Governments are the least market-savvy," warned David Littmann, senior economist at the Mackinac Center for Public Policy and Comerica Bank's former chief economist.
Decades ago, Michigan's public pension funds did invest directly in some of the state's companies, but the results proved so unattractive that the funds have held off until now.
The first fund, called the Growth Capital Fund, will make investments of $2 million to $7 million in attractive companies. It also plans to make larger investments alongside some private equity firms.
The fund is to be managed by Beringea, a Farmington Hills-based private equity and investment banking firm, and the New York investment bank Credit Suisse.
The other fund, the Michigan Opportunities Fund, will do recapitalizations, buyouts and growth equity investments in established lower middle-market Michigan companies. It is to be run by Chicago-based Glencoe Capital, a private equity firm that plans to open an office in Birmingham with four to six employees.
This fund expects to make about 10 investments, ranging from $25 million to $125 million each.
The fund managers will work with a newly formed Business Leadership Council to identify investment opportunities. The 18-member council will be chaired by Detroit businessman Roger Penske, chairman and CEO of the Penske Corp. "This will give us an opportunity to have companies stay in the state," he said.
The council includes Quicken Loans Chairman Dan Gilbert, Dow Chemical Co. CEO Andrew Liveris and Stryker Corp. Chairman John Brown.
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